The new button appears to be broken also, if I use winkey + d to toggle the desktop it correctly remembers which window was active, if I use the button it strangely always uses iTunes as the active Window.

Works for me just fine. I'm glad that it doesn't even show the button anymore and it's basically invisible. I can just do Win+D or throw my mouse over there and click without even thinking or seeing the button and it works just fine.

Its noticeably smaller than in Windows 8. I remember the button slightly bigger in Windows 8. Its irking me a lot.

IIRC, this changed in Windows 8 and hasn't directly changed since. It's a pretty underutilized aspect of the system, so keeping the functionality while giving people back some precious screen space seems like a useful and valuable change.

Just installed 8.1 update 1 and the show desktop button area of the task bar seems to be off screen, I have my task bar on the left side of the screen (vertical). The bottom part shows 2/3 of the date, so the show desktop area is not displayed at all. Worse if I move the mouse to the bottom corner, I get the tiles. (using surface pro 2)